UBS admits tax fraud after US charges threaten existence

Agence France-Presse

Posted at Feb 19 2009 07:55 PM | Updated as of Feb 20 2009 03:55 AM

GENEVA - UBS has agreed to pay US authorities $780 million and hand over customer details to settle charges of tax fraud in the United States that threatened the very existence of Switzerland's biggest bank.

The settlement rocked Switzerland's business establishment on Thursday after the Swiss regulator revealed that the case had not only jeopardised UBS but also the country's fabled financial stability.

The Swiss Financial Markets Supervisory Authority (FINMA) ordered the country's banking flagship to reveal the account details of customers targeted by the US justice investigation, raising questions about the future of banking secrecy.

US court documents revealed shell accounts, which UBS used to justify evading its reporting obligations and help US taxpayers to continue to conceal their identities and assets from the Internal Revenue Service.

UBS is bound by local legal requirements with its US business as well as by taxation agreements between the United States and Switzerland that cover tax fraud and oblige the bank to withhold income taxes on some US clients with foreign securities.

The US Justice Department said in a statement late Wednesday that UBS "has entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS)."

"As part of the deferred prosecution agreement and in an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS's cross-border business," it said.

Swiss newspapers reported Thursday that about 250 to 300 customers were involved.

UBS's agreement "to pay $780 million in fines, penalties, interest and restitution" was accepted earlier Wednesday by a US federal judge in Florida.

The US government would recommend dismissal of the charges because of the bank's "willingness to acknowledge responsibility for its actions and omissions, its cooperation and remedial actions," provided UBS continues to cooperate, the Justice Department said.

UBS chairman Peter Kurer said in a statement: "UBS sincerely regrets the compliance failures in its US cross-border business that have been identified by the various government investigations in Switzerland and the US, well as our own internal review."

"We accept full responsibility for these improper activities," he added.

UBS announced in July that it was halting its offshore banking services for US citizens in light of the probe.

But the official Swiss financial watchdog revealed even deeper implications of the criminal charges first brought by a Florida court against a former UBS banker last spring.

"Such charges could have had drastic consequences for UBS and its liquidity situation and ultimately put its existence at risk," FINMA said in a statement.

A settlement helped "avert the drastic consequences such charges would have for UBS and the stability of the Swiss financial system," it added, reprimanding the bank and banning it from cross-border business with US clients in the future.

UBS posted an annual loss of $17 billion in 2008 and received state aid package after it was battered by the financial crisis and credit squeeze.

Under Swiss banking secrecy law, banks in Switzerland are prohibited from revealing any information to authorities or any third parties about their clients, except in cases involving recognized criminal investigations.

The decision to hand over client details sparked a debate in Switzerland about the future of banking secrecy.

The Neue Zurcher Zeitung newspaper described the move as a "capitulation" to US pressure and said the country's financial services industry "had its back to the wall."

Swiss business lawyer Carlo Lombardini said the outcome marked "the failure of the policy followed by federal authorities for 20 years."